Tesla Shanghai factory starts trial production, first batch of cars will be sold to employees

Reuters quoted sources as saying that Tesla has begun trial production at its $2 billion Chinese factory and will sell the first batch of cars from the factory to employees.

Whether Tesla can ramp up mass production at the plant quickly enough to meet its goals will be one of the main questions for investors when the company reports third-quarter earnings on Wednesday.

Tesla is currently facing pressure to increase production worldwide, so the production plan of the Shanghai factory is crucial. Tesla plans to achieve an annual production target of 500,000 vehicles by the end of this year.

Tesla last week received the certification it needs to build cars in China, but analysts say uncertainty over the workforce and suppliers will be a challenge for mass production.

“There are a lot of pieces of the puzzle that are not under their control,” said Tu Le, an analyst at Chinese market research firm Sino Auto Insight. “Some things take time to complete, such as qualifying new production processes, new battery suppliers, shipping and setting up production equipment, and finalizing all the suppliers. Any parts that have to be imported will need to go through customs, which could also mean delays in production.”

Tesla told Chinese media that it is currently applying for key certification to sell Chinese-made cars in China, but it is unclear when the government will approve Tesla to start sales. Tesla did not respond to the news.

The company said in April it plans to produce at least 1,000 Model 3 cars a week at the new factory by the end of this year, but analysts are skeptical that the company can achieve that goal given Tesla's past record.

Production delays and quality issues have previously affected the release of models such as the Model S and Model X. As early as 2017, Tesla encountered difficulties in producing the Model 3 at its California factory. It took Tesla six months longer than originally expected to achieve the goal of producing 5,000 Model 3s per week, and it was not until about a year after the model went into production that the production capacity was completed.

Still, sources said Tesla is taking steps to ensure a smooth production start, including trying to diversify its battery suppliers, most recently through its acquisition of Maxwell Technologies, whose technology could help the company produce batteries that last longer.

Tesla interviewed hundreds of candidates from major Chinese automakers at recruiting events in Shanghai in August and September, and has also advertised on social media for battery-related production and software systems engineers in Shanghai, as well as delivery managers in other major Chinese cities.